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Monday, September 22, 2003

Are Trade Talks Really About Freeing Trade?

Cancun and the Singapore issues: Eddie, our man in Singapore, at it again.

Why Cancun couldn't

By Eddie Lee

AFTER the Cancun trade talks imploded, Singapore's Trade and Industry Minister George Yeo, who was the facilitator for agriculture, lamented that developing countries were the biggest losers 'because many of them would have stood to gain the most from the reform of agriculture'. He felt the talks failed because resentment against the United States and the European Union (EU) resulted in demands being pressed, 'often to unreasonable limits'. EU Trade Commissioner Pascal Lamy said he would not get into 'the blame game', but then implied that the developing world was responsible for the breakdown.

It was, indeed, a lost opportunity for all. You could say the unity among developing nations is providing a new dynamic in the trade talks, while the US offered little leadership. But if both the developed and developing nations wanted an agreement so much, why were they both so stubborn? Free trade in agriculture certainly means a lot to the developing countries, since most of their people live in the rural sector. According to The Guardian, a Malian trade representative came away from the meeting saying, 'This is a great loss to three million farmers in Mali who live on agriculture. Back home, there will be mourning because nothing had been agreed. I do not know how we will explain this to our people.'

THE talks, however, did not collapse over agricultural subsidies, but over the so-called 'Singapore issues'. The latter term was coined after working groups were set up by the 1996 Singapore Ministerial Conference to negotiate rules involving investment and competition policies, trade facilitation and transparency in government procurement. The Europeans and Japanese insisted on negotiating the 'Singapore issues' in exchange for a deal on agricultural subsidies. Of the four 'Singapore issues', the one concerning foreign direct investments (FDI) was particularly contentious. Developed countries wanted restrictions on investments by overseas corporations removed. Developing nations, however, were concerned about nurturing infant industries and sovereignty issues.

Whatever your views on FDI, you have to ask why talks on free trade should also involve an issue like foreign investments. Why should they be related? Was it a show of muscle by developed countries, extracting FDI concessions in return for granting access to their agricultural markets? The US demanded its own quid pro quo when it slapped environmental conditions on Mexico's membership of the North American Free Trade Agreement. It did the same when it demanded curbs on capital controls in FTAs with Chile and Singapore. Sceptics however suggest that the developed countries' demands on FDI were merely a smokescreen to disguise their own intransigence over agriculture.

Anti-globalisation activists, of course, had a field day. They have been arguing for years that the World Trade Organisation (WTO) is merely a cynical exercise in forcing developing countries to accept foreign ownership and control. Cancun was a chance for the developed countries to give something up for the benefit of the developing countries. It would have meant giving a little for a lot - the average European subsidy per cow, for example, matches the US$2 (S$3.5) per day poverty level on which billions of people barely subsist. But that became a side issue. Perhaps they never intended to give anything up. Why else would the EU and Japan have insisted on negotiating the 'Singapore issues' at Cancun, when there has been virtually no progress on these since the 1996 WTO Ministerial Conference in Singapore? There has always been little connection between trade policy and what's good for a country. Trade policy is made in the world of politics where interest groups count. And right now, in the developed world, there are real concerns with jobless recoveries.

THE gains from trade have always been an abstract concept to grasp. They are derived from taking advantage of differences between countries. The larger the differences, the more there is to benefit. So an urban economy can profit from trading with a rural economy by exporting manufactured goods while importing agricultural produce. But trade also brings pain. This comes during the adjustment process. The problem is magnified when unemployment is already high in an economy. Economic theory does not provide a timeframe for the adjustment process and the human costs.

There are deeper concerns among developed countries. When farm jobs were first lost to poorer nations in the past, new manufacturing jobs made up for the loss. When manufacturing jobs were lost, there were services jobs. But what if services jobs are being lost too, as they are now? Hidden underneath the so-called 'Singapore issues' at Cancun was something which in WTO jargon is known as Mode 4 of the General Agreement of Trade in Services. It concerns removing barriers to the supply of services through allowing temporary migrant labour. Developing countries want their people to be allowed into developed countries to work; the latter are more sticky about it.

Many developing countries had expressed their disappointment with the first pre-Cancun draft ministerial text which omitted this issue altogether. Even then, there was only a token acknowledgement of the 'interest of developing countries' in the final draft issued before Cancun. Whether or not migrant labour should be allowed into developed countries will surely be another test of the latter's commitment to the principles of free trade. But I get a feeling that it will continue to be met with indifference. So tell me again, are trade talks really about freeing trade?
Source: Straits Times
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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".

Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.